Brexit divides the UK stock market

Laura Suter
28 November 2018

•    UK-focused companies have fallen 14% since the start of 2016…
•    …while the FTSE 100’s overseas earners have risen by 24%
•    Unloved UK stocks offer investment bargains, but beware the value traps


Laura Suter, personal finance analyst at investment platform AJ Bell, comments:


“The UK continues to be the most disliked region by fund managers, as shown in the most recent Bank of America Merrill Lynch fund manager survey, with professional investors underweight the region. This view is echoed by retail investors, who have been consistently selling UK funds since the EU referendum – with £10.5bn withdrawn from the funds since the Brexit vote. 


“However, investors need to pick apart the UK market to find potential bargains. A number of domestically-focused UK companies have been unfairly discounted by the market amid fears over Brexit and the outlook for the UK economy.


“If we splice the FTSE 100 in half, into the domestically-focused companies and the internationally-focused companies, the divided market is clear. Cboe Brexit 50/50 indices indices do just this, with the High 50 made up of the 50 companies in the index that get most of their revenues from the UK, while the Low 50 are the firms with the smallest portion of their revenues from the UK. 


“Since the start of 2016 the High 50 has fallen by 14%, while the Low 50 has risen by 24%. Investors can learn a number of lessons from these figures. First, that the FTSE 100 is not a homogenous index of UK companies – underneath the bonnet is a split market. Second, this highlights the group of companies where there are potential bargains to be found.


“However, investors must tread carefully as there are definitely some value traps lying around waiting to ensnare shareholders, and a discounted UK stock is certainly not an immediate call to buy. Instead it’s a case of looking at the shares that could rebound post-Brexit, when global investors warm up to the UK investment case once again.”


Top and bottom performing FTSE 100 stocks since 2016

Top 5 performers Low 50

Top 5 performers High 50

Name

Price change since 1/1/16

Name

Price change since 1/1/16

Anglo American

476%

Ocado Group

147%

NMC Health

327%

Morrison (Wm) Supermarkets

67.4%

Glencore

233%

Segro

50.6%

Melrose Industries

215%

London Stock Exchange Group

49.2%

BHP Billiton

114%

BP

48.3%

Source: AJ Bell/Sharepad. Data to 19/11/18

Source: AJ Bell/Sharepad. Data to 19/11/18

 

Bottom 5 performers Low 50

Bottom 5 performers High 50

Name

Price change since 1/1/16

Name

Price change since 1/1/16

WPP Group

-44.4%

ITV

-46.6%

Vodafone Group

-30.3%

BT Group

-45.7%

British American Tobacco

-27.7%

Marks & Spencer Group

-34.8%

Imperial Brands

-26.4%

Centrica

-34%

Micro Focus International

-5.6%

Standard Life Aberdeen

-34%

Source: AJ Bell/Sharepad. Data to 19/11/18

Source: AJ Bell/Sharepad. Data to 19/11/18

Laura Suter
Personal Finance Analyst
Laura Suter is personal finance analyst at AJ Bell. She is a multi-award winning former financial journalist, having specialised in investments. Laura joined AJ Bell from the Daily Telegraph, where she was investment editor. She has previously worked for adviser publications Money Marketing and Money Management, and has worked for an investment publication in New York. She has a degree in Journalism Studies from University of Sheffield.
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